(Second) UN employee falls 44 meters to his death in UN’s Vienna headquarters. Nuclear scientist had been negotiating with Iranians. Reached for comment, Greenwich Police Chief David Ridberg assured FWIW’s Scusie that “we’ve looked into it, and it’s a clear case of suicide”. The Vienna police will be shutting down their investigation shortly.
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British NHS cuts off pain injections for elderly, refers them to acupuncturists instead. Saves millions. Reached for comment, medical care rationing supporter Professor Alan Washburn told FWIW’s Edgar martins that he wasn’t the least bit disturbed by the news. “That’s England,” he said. “When we introduce ObamaCare here, it will be run by devoted and trusted bureaucrats. No problem. Besides, if the pain’s really too much to bear for some oldster who’s had a full life, she can jolly well jump off a bleedin’ bridge now, can’t she?”
I missed this post on BusinessInsider when it came out on Friday but the pessimists who predict that the worst is just beginning to appear are men after my own heart. And Greenwich will be at the epicenter of that collapse.
The Past: Losses Mostly Behind Us:
• Wave #1: Borrowers committing (or the victim of) fraud & speculators, who
defaulted quickly. Timing: beginning in late 2006 (as soon as home prices
started to fall) into 2008. Mostly behind us.
• Wave #2: Borrowers who defaulted when their mortgages reset due to
payment shock. Timing: early 2007 (as two-year teaser subprime loans written in early 2005 started to reset) to the present. Now tapering off as low interest rates mitigate payment shock.
The Future: Losses Mostly Ahead of Us
• Wave #3: Prime loans (most of which are owned or guaranteed by the
GSEs) defaulting due to job loss and home price declines (i.e., underwater
homeowners). Timing: started to surge in early 2008 to the present.
• Wave #4: Jumbo prime, second lien and HELOCs (most of which are on
banks’ books) defaulting due to job loss and home price declines/
underwater homeowners. Timing: started to surge in early 2008 to the
• Wave #5: Losses among loans outside of the housing sector, the largest of
which will be in the $3.5 trillion area of commercial real estate. Timing:
started to surge in early 2008 to the present.
Importantly, Whitney and Glenn believe that recent signs of stabilization in the housing market are a HEAD FAKE. Prices still have a 10%-15% to fall and won’t recovery quickly.
Rather than representing a true bottom, recent signs of stabilization
are likely due to two short-term factors:
1. Home sales and prices are seasonally strong in April, May and June
due to tax refunds and the spring selling season
2. A temporary reduction in the inventory of foreclosed homes
– Shortly after Obama was elected, his administration promised a new, more
robust plan to stem the wave of foreclosures so the GSEs and many other
lenders imposed a foreclosure moratorium
– Early this year, the Obama administration unveiled its plan, the Homeowner
Affordability and Stabilization Plan, which is a step in the right direction –
but even if it is hugely successful, we estimate that it might only save 20%
of homeowners who would otherwise lose their homes
– The GSEs and other lenders are now quickly moving to save the
homeowners who can be saved – and foreclose on those who can’t
– This is necessary to work our way through the aftermath of the bubble, but
will lead to a surge of housing inventory later this year, which will further
pressure home prices
Here’s what will likely drive future losses:
1. The Economy
• Especially unemployment
2. Interest rates
• Ultra-low rates have helped mitigate some of the damage
• But if the recent spike in rates continues, it could lead to an even greater surge
in defaults and losses
3. Behavior of homeowners who are underwater [Approx 30% of mortgages right now]
• Roughly one-fourth of homeowners with mortgages are currently underwater,
some deeply so
• For many, it is economically rational for them to walk – so called “jingle mail” –
but how many will do so?
• There is little historical precedent – we are in uncharted waters
• As home prices continue to fall and homeowners become more and more
underwater, they are obviously more likely to default, thereby creating a vicious
cycle, but what exactly will the relationship be? Have millions of foreclosures led
to a diminution of the stigma of losing one’s home?
• Our best guess is that there will be rough symmetry: for homeowners 5%
underwater, an additional 5% will default due to being underwater; 10%
underwater will lead to 10% more defaults, and so forth…